The fierce competition among five states to land Tesla Motors' planned "gigafactory" for battery production has been the economic development story of the summer.

Now budget watchdogs from Arizona, California, Nevada, New Mexico and Texas have jointly written an open letter to the states, urging them to rethink economic development and avoid giving away too much in tax breaks and incentives to corporations.

"This process is so crazy. Tesla is in the driver's seat on this, and five governors are falling over themselves," Chris Hoene, executive director of the California Budget Project, said in an interview Tuesday. "The gigafactory is a big fish to land, but it's a pretty high price to pay."

Sen. Dean Heller laughs with reporters Monday, Aug. 11, 2014 after meeting with a transportation round table sponsored by the Association of General Contractors at Granite Construction in Sparks, Nev. Among other things, he discussed efforts to lure Tesla Motors' $5 billion lithium batter plant to Nevada. He warned a proposal to fund education with a 2 percent margins tax on corporations would undermine efforts to seal the deal. (AP Photo/Scott Sonner)
(Scott Sonner)

The joint letter was spearheaded by Good Jobs First, a Washington, D.C.-based organization that is a leading monitor and critic of company-specific subsidy deals. The letter was signed by budget watchdogs in each of the five states under consideration for the gigafactory, including the California Budget Project, the Progressive Leadership Alliance of Nevada, Texans for Public Justice and others.

"Recently our states have been pitted into a race to the bottom from which no real winner may emerge," says their letter. "Tesla Motors' proposed 'gigafactory'-- undoubtedly a valuable source of economic growth for its eventual home state -- has been offered to you in an unusual public auction, with the opening bid set at $500 million in subsidies."

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Tesla has already broken ground on a "potential" gigafactory site in Reno, Nevada, where crews have excavated earth for construction. But the company says it continues to evaluate sites in Arizona, California, New Mexico and Texas. The desire for the $5 billion plant and its potential for 6,500 manufacturing jobs has each state crafting incentive packages, largely behind closed doors.

The gigafactory is enticing because manufacturing jobs tend to pay better wages and benefits than service sector jobs, such as retail and restaurants. For Tesla, the giant factory is key to reducing battery costs for its upcoming Gen 3 electric vehicle, which it hopes to sell for roughly $35,000. It wants a 500- to 1,000-acre site to accommodate up to 10 million square feet of construction, but has said it expects states to cover roughly 10 percent of the $5 billion cost. That's led to speculation that only California or Texas, which have much larger tax bases and state budgets than the other three contenders, could come up with the money.

In California, efforts to land the gigafactory are led by Mike Rossi, Gov. Jerry Brown's senior adviser for jobs and business development. Originally left off the list of states being considered, California has been viewed as an underdog due to its high taxes and stringent environmental laws. Rossi's spokesperson declined to comment on the letter.

State senators Ted Gaines, R-Roseville, and Darrell Steinberg, D-Sacramento, have co-authored a proposed Tesla incentive bill, but details on what it will offer have not been finalized. Besides the money, most experts expect any California incentive package to include a streamlined or expedited process for meeting requirements of the landmark California Environmental Quality Act, or CEQA.

"We know the potential package is in the $500 million range and will use a combination of incentives, including a California Competes tax credit, a local property tax credit, and some streamlining of the CEQA process," Hoene said.